Stocks tumble amid China fears

Fears escalated Monday that the global economy could struggle more than expected this year — a prospect that contributed to a plunge in global financial markets.

The anxiety was heightened by reports that manufacturers extended their slumps last month in the United States and China, the world's two largest economies.


The Dow Jones industrial average clawed back from a steep early decline but still ended down 1.6 percent, its biggest loss in two weeks. Markets in Asia and Europe were down more.

The trouble started in China, where the 10th straight month of weak manufacturing figures in the world's second-largest economy sent the Shanghai Composite Index plunging 6.9 percent before Chinese authorities halted trading.


The wave of selling on the first trading day of 2016 served as a reminder that worries over the fragile global economy that weighed on financial markets last year are not going away anytime soon

"It's going to be a turbulent year," said Kevin Kelly, chief investment officer of Recon Capital Partners. "This isn't a blip."

Investors also were unnerved by heightened tensions between Saudi Arabia, a huge oil supplier, and Iran. Saudi Arabia executed a prominent Shiite cleric, prompting Iranian protesters to set fire to the Saudi Embassy in Tehran on Sunday. The price of oil swung wildly.

In the United States, where a key private indicator of U.S. manufacturing fell in December for the second straight month, the Dow dropped as much as 467 points earlier in the day before rebounding slightly to close off 276.09 points at 17,148.94.

Standard & Poor's 500 index fell 1.5 percent, to 2,012.66. The Nasdaq composite dropped 2.1 percent, to 4,903.09.

The stock market sell-off did not trigger out-of-the-ordinary requests from clients, Baltimore-area money managers and invetment advisers said, although the start of a new year is typically busy. At T. Rowe Price Group, spokesman Bill Weeks said calls tied to Monday's volatility were mixed between those buying and those selling.

"I'm looking at things for the long haul, so the changes don't mean that much to me," said Marc Nachman, 58, of Baltimore County, a member of the Old Bay Investment Club, which meets once a month to discuss the economy and vote on group investments. "I'm not overly concerned."

Rick Rubin, a portfolio manager at Hardesty Capital Management, said Monday's declines had not changed the Hunt Valley-based wealth management firm's expectations for modest, positive returns in 2016.


"The markets have been volatile in 2015 and they'll probably continue to be this year, but overall we don't think it's an overly meaningful datapoint," Rubin said. "It's certainly not the way we'd prefer to start the year, but given some of the news, I think it's a reasonable reaction."

Hardesty Capital Management invests primarily in U.S. companies, but many of those firms have relied on China for growth and profits, Rubin said.

"Any sustained slowdown in the Chinese economy could certainly be challenging for some of the companies we cover," Rubin said.

The Chinese market's slump and weak manfacturing report are the latest signs of economic weakness there. Chinese authorities have been trying for months to restore confidence in the country's market after a plunge in June rattled global markets and prompted a panicked, multibillion-dollar government intervention.

China's government is trying to shift its economy toward domestic consumption and away from a reliance on exports and investment in roads, factories and real estate.

Given earlier economic uncertainty in China, Legg Mason had already "dialed up" discussions last year about how to position portfolios, spokeswoman Mary K. Athridge said in an email.


"We were in touch with clients about how to position in the new year, particularly relative to this market, for a while, and today, we were certainly on the phone with them yet again," she wrote.

A slowdown in China is worrisome around the globe because the country's manufacturers are huge buyers of raw materials, machinery and energy from other countries. Many automakers and consumer goods companies are hoping to sell more to increasingly wealthy Chinese households.

The deceleration already has been hugely disruptive for countries that have long exported commodities such as oil, copper and other metals to the Chinese market, such as Australia, Brazil and Malaysia.

The U.S. economy also has taken a hit: Its exports to China fell 4 percent in the first 10 months of last year compared with the same period in 2014.

"The global spillovers from China's reduced rate of growth … have been much larger than we would have anticipated," Maury Obstfeld, chief economist at the International Monetary Fund, said in an interview Monday with an IMF publication.

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Many economists remain relatively optimistic about the U.S. economy this year. Steady job growth and some early signs that companies are paying higher wages could boost consumer spending, which fuels about two-thirds of the U.S. economy.


Bruce Palmieri, a Baltimore-based wealth management adviser for Northwestern Mutual, said advice to clients depends on their situation, including how close they are to retirement, and it's still early to make predictions for 2016.

"The markets do have cycles," he said. "I don't think this is a big trend at this point to get concerned with."

William Pearce, 62, of Catonsville, another member of the Old Bay Investment Club, said he takes a long-term approach, informed by the rallies that have followed previous declines.

"Unless you really look at a doom-and-gloom environment, you just figure it will come back at some point," said Pearce, adding that he avoided tracking day-to-day moves. "If you look at it that way, you'll just go nuts."

The Associated Press and Tribune News Service contributed to this article.